programs would do to its capital structure. They might have a certain debt to equity ratio they wish to maintain‚ or perhaps there would be covenants put on their contracts requiring them to maintain a certain debt to equity ratio while their loan was outstanding. Ameritrade should use a 6.10% risk free rate when calculating its cost of capital. This is the average of the 20 year bond annualized yield to maturity (on August 31‚ 1997) and the long term historical average annual return (from 1929
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LECTURE 10 COST OF CAPITAL CLASS QUESTIONS 1. Roland Corporation’s last dividend (D0)‚ which was paid yesterday‚ was $2.50. The firm has a constant growth of 18.8%. The firm’s beta coefficient is 1.2. The required return on an average stock in the market is 13 percent‚ and the risk-free rate is 7 percent. Roland’s A-rated bonds are yielding 10 percent‚ its risk premium is 4% and its current stock price is $30. Which of the following values is the most reasonable estimate of Roland’s cost of retained
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NIKE‚ INC.: COST OF CAPITAL Book value vs. Market value While calculating the Nike’s cost of capital using both the book value (Exhibit 1.1) and the market value (Exhibit 1.2)‚ I could notice the mistake Cohen made finding the equity value. Cohen used the book value to reflect equity value. Although the book value is an accepted measure to estimate the debt value‚ the equity’s book value is an inaccurate measure of the value perceived by the shareholders. Since Nike is a publicly traded company
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Telus: The Cost of Capital Telus needs to calculate the cost of capital from the variety of data given. The cost of capital is determined mostly by how the funds are used rather than where they were obtained from. It relies on the risk of investments Telus involves in‚ therefore‚ depending on cost of both equity of debt as described below. Also note that‚ even though the preferred shares are not attractive to issuers and may not get issued again‚ it is still on the company’s balance sheet and affect
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Toyota Cost of Capital Case: General Methodology We used the following framework to do the calculations for all the companies. Afterwards we will discuss their implications: To estimate the cost of equity (RE) we used the following CAPM model: RE = RF + βE (RM-RF) whereby‚ Market Premium = RM – RF = 6% (Given in case) RM = Return for S & P 500 (a market return that takes into account systematic risk associated with the market place where our company is traded‚ NYSE) Risk Free Rate
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EPBX‚ while also retaining the benefits of a direct line Types of Centrex services offered: • Single-switch‚ single-site Centrex: All the Centrex lines within the group will be located in a single premises and will be covered by a single exchange. • Single-switch‚ multi-site Centrex: The Centrex lines taken by the group can be located in multiple premises within the same exchange area. • Multi-switch‚ multi-site Centrex: The Centrex lines taken by
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Multinational Cost of Capital Capital Structure‚ Risk and the Cost of Capital for Multinational Companies (1713 words) 2015 Table of Contents Introduction 2 Literature Review 2 Capital Structure‚ Risk and the Cost of Capital for Multinational Companies 2 Criticism to the work and the upstream-downstream hypothesis 2 Conclusion 2 References 2 Introduction “Theoretically‚ MNEs should be in a better position than their domestic counterparts to support higher debt ratios because their cash flows
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Introduction Kimi Ford is a portfolio manager at NorthPoint Group‚ a mutual-fund management firm. She is evaluating Nike‚ Inc. (“Nike”) to potentially buy shares of their stock for the fund she manages‚ the NorthPoint Large-Cap Fund. This fund mostly invests in Fortune 500 companies‚ with an emphasis on value investing. This Fund has performed well over the last 18 months despite the decline in the stock market. Ford has done a significant amount of research through analysts’ reports
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Nike‚ Inc.: Cost of Capital Case 15 Financial Administration FINC 5713-180 Team 1 Fall 2013. October 8‚ 2013. Introduction Kimi Ford a portfolio manager at NorthPoint Group which is a mutual-fund management firm‚ is considering to buy some shares from Nike‚ inc even if it’s share price had declined from the beginning of the year‚ for the Northpoint Large-cap fund she managed which invested mostly in Fortune 500 companies and it was doing well despite the decline
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The Cost of Capital LEARNING OBJECTIVES After reading this chapter‚ students should be able to: • Explain what is meant by a firm’s weighted average cost of capital. • Define and calculate the component costs of debt and preferred stock. • Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. • Briefly explain why the cost of new equity is higher than the cost of retained earnings‚ calculate the cost of new
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